Putting off Social Security until 70

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3feetpete
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Putting off Social Security until 70

Post by 3feetpete » Sun Jun 07, 2015 6:48 pm

I have a simple way of looking at the decision whether it makes sense to put off taking SS benefits. I compare how much SS income I would have to replace in the years 66-70 with what it would be worth to me at age based on an assumed withdrawal rate of 4%.

In my case I can collect 2721 per month at 66 or 3617 at 70. So to put off my SS until 70 I have to give up $130,608 over 4 years and that has to come out of my 401K.

I look at spending down my 401K as an investment of 130K but I now get 10.8k more per year in guaranteed income which is worth 270K if I assume a safe withdrawal rate of 4% . So my way of looking at it is that I invested 130K to make 270K which is a no-brainer.

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Meaty
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Re: Putting off Social Security until 70

Post by Meaty » Sun Jun 07, 2015 7:21 pm

Many here plan to delay until age 70 due to the 8% per yr increase. I don't agree,however, because the amount at age 62 and 70 are actuarialy equivalent. If I recall correctly, one has to live to ~81 to break even
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joebh
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Re: Putting off Social Security until 70

Post by joebh » Sun Jun 07, 2015 7:28 pm

Meaty wrote:Many here plan to delay until age 70 due to the 8% per yr increase. I don't agree,however, because the amount at age 62 and 70 are actuarialy equivalent. If I recall correctly, one has to live to ~81 to break even
And many folks expect to live past 81. A minority do not.

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Re: Putting off Social Security until 70

Post by BahamaMan » Sun Jun 07, 2015 7:41 pm

Meaty wrote:Many here plan to delay until age 70 due to the 8% per yr increase. I don't agree,however, because the amount at age 62 and 70 are actuarialy equivalent. If I recall correctly, one has to live to ~81 to break even
Does your Financial Plan end before Age 81 Also ?

ourbrooks
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Re: Putting off Social Security until 70

Post by ourbrooks » Sun Jun 07, 2015 8:13 pm

Meaty wrote:Many here plan to delay until age 70 due to the 8% per yr increase. I don't agree,however, because the amount at age 62 and 70 are actuarialy equivalent. If I recall correctly, one has to live to ~81 to break even
Tis absolutely true that, actuarialy, the expected amounts received are identical for starting Social Security at age 62 and age 70 and for people with no other financial resources taking Social Security at age 62 beats going on welfare. The issue arises when you have other money to spend in retirement. You could either spend the money evenly throughout retirement starting at age 62 or you could spend more of the money between ages 62 and 70 to live on before starting Social Security at age 70. Which is the better way to spend this additional money?

The answer is that if you expect to live to more than age 81 or thereabouts, you'll get more total money by spending your other money to delay taking Social Security until age 70. If you don't think you'll live to age 81, then take Social Security at age 62 so that you can leave the other money to your heirs.

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beyou
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Re: Putting off Social Security until 70

Post by beyou » Sun Jun 07, 2015 8:15 pm

It is not just the break even that matters IMO.
I am considering the benefits of taking the money earlier, to reduce the
spend rate on my own assets. I like the comfort of having my own assets
in hand longer and reducing my dependency on the government many years
down the road. What happens when they push retirement age to 100,
as the fund runs out ?

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Re: Putting off Social Security until 70

Post by ObliviousInvestor » Sun Jun 07, 2015 8:19 pm

Meaty wrote:Many here plan to delay until age 70 due to the 8% per yr increase. I don't agree,however, because the amount at age 62 and 70 are actuarialy equivalent.
The general idea is for the amounts to be actuarially equivalent, but in real life they usually are not.

For example, right now, with interest rates being lower than the interest rates baked into the calculations, the average person will come out ahead by delaying. (And the average high-PIA spouse in a married couple will come out very far ahead by delaying.)
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whaleknives
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Re: Putting off Social Security until 70

Post by whaleknives » Sun Jun 07, 2015 8:32 pm

I don't see anyone mentioning survivor benefits yet. If you expect your spouse to outlive you, then
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Re: Putting off Social Security until 70

Post by nbseer » Sun Jun 07, 2015 8:43 pm

Another point to consider: putting off SS until 70 and spending down some of your tIRA until then also reduces your RMDs when you hit 70 1/2. Depending on the size of your tIRA, the tax hit on those RMDs could be big I(ie:, you did too good a job of saving for retirement!).

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Re: Putting off Social Security until 70

Post by TheTimeLord » Sun Jun 07, 2015 9:04 pm

BahamaMan wrote:
Meaty wrote:Many here plan to delay until age 70 due to the 8% per yr increase. I don't agree,however, because the amount at age 62 and 70 are actuarialy equivalent. If I recall correctly, one has to live to ~81 to break even
Does your Financial Plan end before Age 81 Also ?
I thought it was 82 but either 81 or 82. I think one thing people may not consider is how much more active their life will likely be between 62-81 than post 81. In other words your spending may drop by 81 because you will be less active or possibly less physically able. I think it is really a tough decision and very individual.
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Watty
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Re: Putting off Social Security until 70

Post by Watty » Sun Jun 07, 2015 9:07 pm

ourbrooks wrote:Tis absolutely true that, actuarialy, the expected amounts received are identical for starting Social Security at age 62 and age 70........
Not really. Social Security does not take gender into account so delaying is a better deal for females than males since they tend to live longer.

It also does not take the current interest rates into account. If it did then as the interest rates declined to the current low level the increase in the benefits because of delaying the start to a later age would be less.

With the current low interest rates delaying the start of Social Security is a really good deal for a single woman that is in decent health, less so for a single man, and very complex for a couple.

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spend the $40

Post by daveatca » Sun Jun 07, 2015 9:59 pm

Sign up for maximizemysocialsecurity.com
I did.
Worth the $40 to play what-if games.

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Re: Putting off Social Security until 70

Post by westcoast » Sun Jun 07, 2015 10:23 pm

I think Ourbrooks said it best.

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Re: Putting off Social Security until 70

Post by Miriam2 » Sun Jun 07, 2015 10:40 pm

What I find interesting about the break even point is that it is so tantalizingly within reach that it makes the decision more difficult.
If the break even point - on whether to take SS at 66 or 70 - were age 72 or 73 (instead of age 82), the decision would be much easier.
If the break even point were age 90, the decision would be much easier.
It is almost as though someone designed the break even at the ever-so-within-reach of 82 to make the decision difficult.

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Re: Putting off Social Security until 70

Post by basspond » Sun Jun 07, 2015 11:06 pm

You are missing a couple of key factors. The appreciation of the $130k that is left in your 401k when taking at 66 plus the added amount you have to withdraw to get the $130k because of taxes you have to pay. The $270k would be a good number to work with if SS payments continued after your death. That is why in the end it is all about how much you are counting SS to be in your retirement income. Higher percentage, longer you should wait which also means the longer you will need to work.

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Re: Putting off Social Security until 70

Post by JW-Retired » Mon Jun 08, 2015 1:55 am

My pet peeve.......most everyone in these kind of threads seems to ignore the large difference in taxes on SS income versus other income (such as from tax deferred accounts like IRAs). If RMDS are going to get taxed at a much higher rate than SS benefits you probably should aim for making SS retirement income bigger and IRA RMDs smaller. :oops:

In my own case, tax software says I pay 44.3% federal + state tax on a marginal dollar of pension or RMD income, but only 29.8% on a marginal SS benefit dollar. In the SS tax phase-in region the disparity can be quite lot larger than this.

Could posters please add the two marginal tax rates in your own cases?
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Re: Putting off Social Security until 70

Post by Workinghard » Mon Jun 08, 2015 4:02 am

JW Nearly Retired wrote:My pet peeve.......most everyone in these kind of threads seems to ignore the large difference in taxes on SS income versus other income (such as from tax deferred accounts like IRAs). If RMDS are going to get taxed at a much higher rate than SS benefits you probably should aim for making SS retirement income bigger and IRA RMDs smaller. :oops:

In my own case, tax software says I pay 44.3% federal + state tax on a marginal dollar of pension or RMD income, but only 29.8% on a marginal SS benefit dollar. In the SS tax phase-in region the disparity can be quite lot larger than this.

Could posters please add the two marginal tax rates in your own cases?
JW
They also ignore the survivor benefit for the younger, lower income earner. See what I've learned from hanging out here! JW, weren't you the one that had the chart comparing tax amounts on SS and RMDs combinations? I printed it out and have it in my retirement planning notebook.

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Re: Putting off Social Security until 70

Post by SGM » Mon Jun 08, 2015 4:52 am

I no longer look at the break even point as being that important. SS is the cheapest inflation adjusted insurance I can buy. Safe investments are paying very low rates right now. I think of delaying as insuring against a long life. There is a good chance one of us will live to be over 90. The benefit for a widow will be a lot higher with the delay. One of us can collect a spousal benefit at FRA. Before collecting is a good time to make Roth conversions.

Under current interest rates, I have yet to see a cogent argument for taking SS early other than being unable to cover your expenses or an expectation of an early demise.

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Re: Putting off Social Security until 70

Post by Jack FFR1846 » Mon Jun 08, 2015 7:04 am

I may very well not make it to 70. Combine this with my belief that benefits will be reduced sooner rather than later and it makes it a no-brainer to take ss at 62.

All of these numerical exercises are only exercises. Any number of assumption could turn out to be wrong in the end.
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Re: Putting off Social Security until 70

Post by freebeer » Mon Jun 08, 2015 7:44 am

ourbrooks wrote:...for people with no other financial resources taking Social Security at age 62 beats going on welfare...
I'm not so sure about that. My Mom took Social Security at age 62, in part because she perceived herself to be in poorer than average health (she had been a smoker from age 13 until then) but mainly based on need (she was a successful business owner but had suffered financial setbacks). She's well into her 80s now and in better health than at 62 (she was scared into stopping smoking), still living on her own. With hindsight she would have been better off doing whatever it took to make it to 65, including going on welfare for a couple of years!

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Re: Putting off Social Security until 70

Post by vested1 » Mon Jun 08, 2015 7:49 am

I never gave much credence to the break even point, even though ours is more favorable than age 82 if we are able to stick to our filing strategy. Most who advocate filing early because of the break even argument treat the amount as if it were a lump sum, rather than what it truly is; income.

If I can afford to delay I will receive more spendable income because it is taxed more favorably than other income sources, with a maximum of 85% of the benefit being taxable for federal and 0% in State taxes in California. The reduction in State taxes for total income in California is significant enough to almost be a deciding factor by itself. I would rather spend a larger percentage of my income on myself and my family rather than handing it over to the government.

If, heaven forbid, I need to replace a vehicle or a water heater etc, more income makes the possibility of dipping into emergency reserves less likely.

I sat down yesterday with a close relative at their request to compare filing strategies. Their combined PIA amounts are very similar to ours. They also have very similar age differences. They will file for their own at 65/66 and our plan is for my wife to file for her own at 65 while I file a restricted application on hers at 66 (FRA) and delay until 70.

The difference in today's dollars is about $12,000 a year more for my wife and I at age 69/70, which is a couple of pretty nice vacations or whatever else we feel like splurging on. Added to that is the increase in survivor benefits for my wife if I should die after age 70 of about $800 more a month in today's dollars as compared to the other family member. They are comfortable with their strategy and so are we, which was the most important aspect of our discussion.

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Re: Putting off Social Security until 70

Post by dbr » Mon Jun 08, 2015 8:01 am

vested1 wrote:
They are comfortable with their strategy and so are we, which was the most important aspect of our discussion.
If they are comfortable because they like the prospect of not leaving social benefits on the table and you are comfortable because you have the best plan to assure income in old age, then it might be someone here shouldn't be as happy as they seem to be. One can't gainsay the decision if it really is clear what is at stake, of course.

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Re: Putting off Social Security until 70

Post by tampaite » Mon Jun 08, 2015 8:02 am

Deleting my messages on this forum
Last edited by tampaite on Mon Jun 03, 2019 10:21 am, edited 1 time in total.

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Re: Putting off Social Security until 70

Post by JDCarpenter » Mon Jun 08, 2015 8:07 am

tampaite wrote:...

Average lifespan in United States is only 79 so chances are, you might not make it to 81 or 82.

Link: http://en.wikipedia.org/wiki/List_of_co ... expectancy
That is from birth. Look at it from age 65. 2014 society of actuaries numbers are 86.6 for men, 88.8 for women. (and, the numbers are higher for the demographic of this board, I imagine)
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Re: Putting off Social Security until 70

Post by DFrank » Mon Jun 08, 2015 8:11 am

There are two risks one can consider here: The risk of not reaching your "break even" age, and the risk that you live a long life and end up in a position where you rely more on your social security benefit due to depleted savings. In the first case you lost out on some income while you were alive, but that's the only real downside. In the second scenario you probably would like the higher social security benefit.

I think we're going to protect against the second risk.
Dave

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Re: Putting off Social Security until 70

Post by dbr » Mon Jun 08, 2015 8:24 am

Anyone who is taking SS early because they don't want to die with unused benefits should also be spending the rest of their money at an increased rate for the same reason. The tricky computation is postponing SS but increasing spending early.

In reality people take SS as soon as they can get it because they simply don't have the savings and other resources to live without it. That is understandable.

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Re: Putting off Social Security until 70

Post by SGM » Mon Jun 08, 2015 8:43 am

I would only compare the SS decision to a safe bet like treasuries. But the break even analysis is no longer anything I am interested in. I would rather have the insurance of higher inflation adjusted income beyond age 70. As a couple and given family history and current health at least one of us will live well beyond 90. Soon we will receive a spousal benefit at FRA for one of us. There is nothing that is close to the low cost insurance afforded by delaying SS. I did my last two IRA conversions while delaying SS.
It is interesting that when I talk about SS to friends and relatives there is generally no middle ground. People either take it as early as possible or delay it to 70. The few that take it at 62 don't want to hear about the benefits of delaying it. As long as they are happy and don't ask to borrow money from me that's fine. Some of them could benefit from suspending their SS right now but would never hear of it, even though it would not be a hardship to suspend.

Most are unaware of spousal benefits. Although a recent widow just told me she found out she could collect widow benefits from her first husband who had a higher income than her last husband. Both husbands are deceased and she was divorced from the second after greater than 10 years of marriage. I was glad for her as she told me she will be less dependent on her children.

SS is unique in how it is taxed and its inflation adjustment. The fact that a maximum of 85% of SS benefits are taxed by the feds and some states don't tax it at all is a real plus.

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Re: Putting off Social Security until 70

Post by VictoriaF » Mon Jun 08, 2015 9:08 am

Social Security also provides insurance for one´s old-age senility. It´s easier to get defrauded on the assets than on a government-provided annuity.

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Re: Putting off Social Security until 70

Post by mptfan » Mon Jun 08, 2015 9:14 am

JDCarpenter wrote:
tampaite wrote:...

Average lifespan in United States is only 79 so chances are, you might not make it to 81 or 82.

Link: http://en.wikipedia.org/wiki/List_of_co ... expectancy
That is from birth. Look at it from age 65. 2014 society of actuaries numbers are 86.6 for men, 88.8 for women. (and, the numbers are higher for the demographic of this board, I imagine)
That is a common mistake that people make...most people don't understand the difference between mortality tables that begin at birth, and mortality tables that begin at later ages, the most commonly cited being age 65.

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Re: Putting off Social Security until 70

Post by mptfan » Mon Jun 08, 2015 9:15 am

mptfan wrote:
JDCarpenter wrote:
tampaite wrote:...

Average lifespan in United States is only 79 so chances are, you might not make it to 81 or 82.

Link: http://en.wikipedia.org/wiki/List_of_co ... expectancy
That is from birth. Look at it from age 65. 2014 society of actuaries numbers are 86.6 for men, 88.8 for women. (and, the numbers are higher for the demographic of this board, I imagine)
Tampaite, don't feel bad, that is a common mistake that many people make...most people don't understand the difference between mortality tables that begin at birth, and mortality tables that begin at later ages, the most commonly cited ages being 65 and 75.

http://www.cdc.gov/nchs/data/hus/2011/022.pdf

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Re: Putting off Social Security until 70

Post by AAA » Mon Jun 08, 2015 9:42 am

I am in the position of deciding what to do myself. One thing to consider is that future reductions in Soc. Sec. benefits or added means testing that reduce payments are unknown factors that can't be modeled but are nevertheless possibilities, especially as the solvency of the fund needs to be addressed in coming years. The government has been continually raising the Soc. Sec. payroll tax, but with fewer people contributing relative to the number collecting, other steps may be necessary. These would argue in favor of the "get it while you can" point of view.

Maybe collecting at FRA is a good middle of the road strategy?

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Re: Putting off Social Security until 70

Post by DFrank » Mon Jun 08, 2015 11:19 am

AAA wrote:I am in the position of deciding what to do myself. One thing to consider is that future reductions in Soc. Sec. benefits or added means testing that reduce payments are unknown factors that can't be modeled but are nevertheless possibilities, especially as the solvency of the fund needs to be addressed in coming years. The government has been continually raising the Soc. Sec. payroll tax, but with fewer people contributing relative to the number collecting, other steps may be necessary. These would argue in favor of the "get it while you can" point of view.

Maybe collecting at FRA is a good middle of the road strategy?
First, I note that your SS benefit is already means tested through tax policies.

Even if they increase the level of means testing, to me it still makes sense to maximize your benefit by delaying because it still would protect against the risk of living a long time and depleting your savings. I assume that if your savings are gone, your SS benefit won't be reduced by means testing.

If you are lucky enough to live a long time and have your SS benefit reduced through means testing that's probably not the worst outcome.
Dave

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Re: Putting off Social Security until 70

Post by BahamaMan » Mon Jun 08, 2015 11:40 am

tampaite wrote:Look at your family history - did most of them survive past 90 ? Otherwise it's best to take at 62 vs 81 or 82. What good is it you wait until 81 or 82 and then you don't survive past 83.

Life in your 60s will be very different than in your 80s.

Average lifespan in United States is only 79 so chances are, you might not make it to 81 or 82.
Doesn't matter if you live to 70, 80 or 100. You can spend more money in your 60's, if you delay S.S. to age 70. And this is with the 4% swr. If you use 3% swr you can spend even more. Run the Numbers and you'll find out that this is true.

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Re: Putting off Social Security until 70

Post by westie » Mon Jun 08, 2015 12:43 pm

My wife decided to take it at 62. She's in good health and we don't need it to live. We figure we can have more fun with the money at 62 than 70. Nothing is promised.

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Re: Putting off Social Security until 70

Post by BahamaMan » Mon Jun 08, 2015 12:47 pm

westie wrote:My wife decided to take it at 62. She's in good health and we don't need it to live. We figure we can have more fun with the money at 62 than 70. Nothing is promised.
Doesn't matter if you live to 70, 80 or 100. You can spend more money in your 60's, if you delay S.S. to age 70. And this is with the 4% swr. If you use 3% swr you can spend even more. Run the Numbers and you'll find out that this is true.

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Re: Putting off Social Security until 70

Post by gerntz » Mon Jun 08, 2015 1:58 pm

joebh wrote:
Meaty wrote:Many here plan to delay until age 70 due to the 8% per yr increase. I don't agree,however, because the amount at age 62 and 70 are actuarialy equivalent. If I recall correctly, one has to live to ~81 to break even
And many folks expect to live past 81. A minority do not.
I think the positive attitude of expecting to live past 81 probably translates to a higher probability of living past 81 regardless of past family life lengths. I.e., it's a goal you work to achieve thru lifestyle choices.

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Re: Putting off Social Security until 70

Post by JW-Retired » Mon Jun 08, 2015 1:59 pm

Workinghard wrote:
JW Nearly Retired wrote:My pet peeve.......most everyone in these kind of threads seems to ignore the large difference in taxes on SS income versus other income (such as from tax deferred accounts like IRAs). If RMDS are going to get taxed at a much higher rate than SS benefits you probably should aim for making SS retirement income bigger and IRA RMDs smaller. :oops:

In my own case, tax software says I pay 44.3% federal + state tax on a marginal dollar of pension or RMD income, but only 29.8% on a marginal SS benefit dollar. In the SS tax phase-in region the disparity can be quite lot larger than this.

Could posters please add the two marginal tax rates in your own cases?
JW
They also ignore the survivor benefit for the younger, lower income earner. See what I've learned from hanging out here! JW, weren't you the one that had the chart comparing tax amounts on SS and RMDs combinations? I printed it out and have it in my retirement planning notebook.
Yep, I like to make such charts if the numbers are pretty easy to dig up. Thanks for noticing that one!
JW
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Re: Putting off Social Security until 70

Post by BahamaMan » Mon Jun 08, 2015 2:13 pm

JW Nearly Retired wrote: Yep, I like to make such charts if the numbers are pretty easy to dig up. Thanks for noticing that one!
JW
Also, if you don't draw SS from ages 62-70, you have more opportunity to convert more Regular IRA to Roth IRA at a lower tax rate.

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Re: Putting off Social Security until 70

Post by SGM » Mon Jun 08, 2015 2:21 pm

VictoriaF wrote:Social Security also provides insurance for one´s old-age senility. It´s easier to get defrauded on the assets than on a government-provided annuity.

Victoria
This is very real. I have seen this within our family and in several of the elderly I have taken care of. Families have a hard time preventing this type of fraud from occurring. SS and annuities are somewhat safer than a nest egg from fraud. Then there is someone like Madoff lurking around. The elderly get all kinds of unsolicited phone calls, etc..

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Re: Putting off Social Security until 70

Post by mptfan » Mon Jun 08, 2015 2:31 pm

SGM wrote:SS and annuities are somewhat safer than a nest egg from fraud.
Social Security is only somewhat safer from fraud? How do fraudsters get someone's social security benefits? Are they not totally safe from fraudsters? I understand that fraudsters may convince an elderly person to give them money after their social security retirement benefits are deposited into their account, but the future stream of social security payments are completely safe from fraudsters, are they not?

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Re: Putting off Social Security until 70

Post by dodecahedron » Mon Jun 08, 2015 2:42 pm

There are some pretty strong protections in place for the future stream of Social Security benefits:

http://www.consumerfinance.gov/askcfpb/ ... -debt.html

That said, it wouldn't be TOTALLY impossible for a fraudster to leave a person in a situation that imperiled their future stream of SS benefits. (E.g., they get a person to co-sign a federally guaranteed student loan at a sketchy fly-by-night proprietary college, they recruit a person into a small-business partnership that runs up an unpaid liability for employee payroll taxes, etc.)

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Re: Putting off Social Security until 70

Post by downshiftme » Mon Jun 08, 2015 3:48 pm

Many here plan to delay until age 70 due to the 8% per yr increase. I don't agree,however, because the amount at age 62 and 70 are actuarialy equivalent. If I recall correctly, one has to live to ~81 to break even
With financial analysis, we are accustomed to working out break even calculations and seem to assume that coming out on the better side is what we want. But that is not true for everyone with Social Security. For SS, if I fail to reach the break even age, then I will have died without getting my maximum SS. This may make a small difference to my heirs and charities, but it is of very little consequence to me, since I am now dead. I have enough investments that my lifestyle was not compromised while I lived, and by dying early I didn't even use all that I had.

On the other hand, if I live longer than my break even age, then I will be very glad to have the increased income. This is the case that I actually care about. While it seems unfortunate if I die before using all my money, I don't care to insure against that possibility. But the chance of living so long that I might outlive my money, that is an outcome that I do care about and in fact want to insure against. I can get very cheap and effective insurance by delaying SS as long as they let me. The cost of that insurance is that if I die early I didn't take possession of some SS benefits I wasn't going to use anyway. I am happy to pay that price.

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Re: Putting off Social Security until 70

Post by lawman3966 » Mon Jun 08, 2015 4:10 pm

I agree with taking benefits at 70, but don't agree with your math.

Your 4% SWR analysis starting at age 70 doesn't make sense to me, as the 4% guideline is intended for a 30 year retirement period. Using age 100 as your expected life expectancy imparts too much of a benefit to a higher monthly amount.

The approach to the calculation is to find the expected value at age X, based on monthly income and life expectancy, and to then to the same at age Y (which could be age 70 or another age).

Though intended to be actuarially neutral, the benefit levels may not be neutral for every era and every person. Specifically, for periods with low real interest rates (like the present day) and for people with healthy habits and high education levels (and thus higher life expectancies), there is more of an advantage to waiting to age 70 to take benefits than the bare actuarial data indicates. You can search for Shoven and Slavov for a detailed treatment of these issues.

An additional benefit of waiting is that doing so increases the income floor that can serve as a very nice cushion in the event that circumstances erode the value of a nest egg. Should you live beyond 82 (the usually accepted break-even age), the extra money could be tangibly helpful for an extended period. If you get deathly ill at 78, what is the disadvantage of having waited to take benefits? Answer: in the abstract you can regret that you could have spent more between 65 (or other start age) and age 78. I'd prefer to have more income for living past 82 than to gamble on having a shorter than expected lifespan.

22twain
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Re: Putting off Social Security until 70

Post by 22twain » Mon Jun 08, 2015 4:11 pm

AAA wrote:The government has been continually raising the Soc. Sec. payroll tax
The payroll tax has not been raised since 1990, when it was set at 6.2% for both employee and employer. The employee payroll tax was reduced to 4.2% for two years after the 2008 crash, as an economic stimulus measure.

http://www.ssa.gov/oact/progdata/taxRates.html
My investing princiPLEs do not include absolutely preserving princiPAL.

vested1
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Re: Putting off Social Security until 70

Post by vested1 » Mon Jun 08, 2015 4:16 pm

downshiftme wrote:
Many here plan to delay until age 70 due to the 8% per yr increase. I don't agree,however, because the amount at age 62 and 70 are actuarialy equivalent. If I recall correctly, one has to live to ~81 to break even
With financial analysis, we are accustomed to working out break even calculations and seem to assume that coming out on the better side is what we want. But that is not true for everyone with Social Security. For SS, if I fail to reach the break even age, then I will have died without getting my maximum SS. This may make a small difference to my heirs and charities, but it is of very little consequence to me, since I am now dead. I have enough investments that my lifestyle was not compromised while I lived, and by dying early I didn't even use all that I had.

On the other hand, if I live longer than my break even age, then I will be very glad to have the increased income. This is the case that I actually care about. While it seems unfortunate if I die before using all my money, I don't care to insure against that possibility. But the chance of living so long that I might outlive my money, that is an outcome that I do care about and in fact want to insure against. I can get very cheap and effective insurance by delaying SS as long as they let me. The cost of that insurance is that if I die early I didn't take possession of some SS benefits I wasn't going to use anyway. I am happy to pay that price.
Thank you. This is something that eludes many who use the break-even argument. It's as if they imagine themselves as Jacob Marley, pulling around chains and moaning about past mistakes. Dead is dead. Income while living is something more tangible than a fictional ghost story.
Last edited by vested1 on Mon Jun 08, 2015 7:27 pm, edited 1 time in total.

BahamaMan
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Re: Putting off Social Security until 70

Post by BahamaMan » Mon Jun 08, 2015 4:26 pm

lawman3966 wrote:I agree with taking benefits at 70, but don't agree with your math.

Your 4% SWR analysis starting at age 70 doesn't make sense to me, as the 4% guideline is intended for a 30 year retirement period.
Not sure who you are talking to here, but if it's me, I was not using 4% swr at age 70 but at age 62. Read this thread so that you understand all of the details before commenting.

viewtopic.php?t=102609

lawman3966
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Re: Putting off Social Security until 70

Post by lawman3966 » Mon Jun 08, 2015 4:33 pm

BahamaMan wrote:
lawman3966 wrote:I agree with taking benefits at 70, but don't agree with your math.

Your 4% SWR analysis starting at age 70 doesn't make sense to me, as the 4% guideline is intended for a 30 year retirement period.
Not sure who you are talking to here, but if it's me, I was not using 4% swr at age 70 but at age 62. Read this thread so that you understand all of the details before commenting.

viewtopic.php?t=102609
I was responding to the OP. From a brief review of your posts, it seems as though we agree that claiming benefits at 70 is preferable to claiming earlier on.

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AAA
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Re: Putting off Social Security until 70

Post by AAA » Mon Jun 08, 2015 4:39 pm

22twain wrote:
AAA wrote:The government has been continually raising the Soc. Sec. payroll tax
The payroll tax has not been raised since 1990, when it was set at 6.2% for both employee and employer. The employee payroll tax was reduced to 4.2% for two years after the 2008 crash, as an economic stimulus measure.

http://www.ssa.gov/oact/progdata/taxRates.html
Thank you. What I meant to say was the amount of one's wages that is subject to Social Security payroll tax has been rising. Hasn't it?

etarini
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Re: Putting off Social Security until 70

Post by etarini » Mon Jun 08, 2015 4:54 pm

Yes, like the COLA, the taxable maximum rises with the CPI-W. Currently, the maximum is $118,500, and each year, about 6% of covered workers have incomes above the taxable maximum. So 94% of all wage-earners are not affected.

http://www.ssa.gov/retirementpolicy/fac ... rners.html

Of course, from the point of view of those who are certain that the government is cooking the books on inflation, the increases in the maximum would be less than the "real" inflation.

Eric

vested1
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Re: Putting off Social Security until 70

Post by vested1 » Mon Jun 08, 2015 5:51 pm

BahamaMan wrote:
lawman3966 wrote:I agree with taking benefits at 70, but don't agree with your math.

Your 4% SWR analysis starting at age 70 doesn't make sense to me, as the 4% guideline is intended for a 30 year retirement period.
Not sure who you are talking to here, but if it's me, I was not using 4% swr at age 70 but at age 62. Read this thread so that you understand all of the details before commenting.

viewtopic.php?t=102609
Thanks for linking that thread again BahamaMan. I read it soon after I joined the site and it helped change my reasoning on the subject of delaying. I'm doing a variation of what Cut-Throat suggested by isolating a portion of savings to fund the delay. Higher up in this thread I mentioned that I had discussed differing filing strategies with a family member last weekend. He has nearly reached his FRA, whereas I am 3 years away.

Looking only at the 4 year delay from 66 to 70, and comparing his strategy to mine, his strategy will garner more SS benefits initially but mine will result in 20% more at my age 70. He was ready with his printed T-Rowe Price SS calculation and since he knew what I was planning to do he compared both over our average life expectancies as stated by the calculator. The aspect for him that tipped the decision in favor of his strategy was that my cumulative benefits were "only" 200k more than his were, discounting COLA. He failed to realize that the 200k was mostly paid out over 15 years. Once again he was falling into the trap of treating the benefit as a lump sum, rather than income. He had also placed a dollar amount on what he wanted to set aside yearly for vacations, which was about $2,000 less than the increased amount I would be getting from the delay.

I think many advisors are using the wrong argument to convince clients about the advantages of delaying when they bring up break-even or cumulative benefits, which are basically the same argument. Income in retirement is the only logical factor unless leaving a legacy is a major concern. If I can supplement my income in retirement by drawing more from my retirement savings temporarily from my retirement date until 70, then ratcheting it back after a guaranteed 76% gain in SS benefits (from age 62 to 70) with SS taking the place of the larger withdrawals, then I can enjoy life and spend more NOW, while paying less taxes after age 70.

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